Realizing the True Value of Solar Energy in Alberta · solar energy policy options that would be...

1From Proven Reserve to Developed Resource: Realizing the True Value of Solar Energy in Alberta

Canadian Solar Industries Association

FROM PROVEN RESERVE TO DEVELOPED RESOURCE:

Realizing the True Value of Solar Energy in Alberta

www.cansia.ca

2 Canadian Solar Industries Association | www.cansia.ca

Table of Contents

1. Introduction 1

1.1 Why is Solar Important for the Future of Alberta’s Electricity Sector? 1

1.2 Why does Alberta’s Current Policy Need to Change for Solar Electricity? 4

2. What Available Policy Options would be Most Effective for Alberta? 5

2.1 GHG Emissions Policy Options 5

2.1.1 Carbon Pricing, Carbon Offsets and Technology Funds 5

2.1.2 Emissions Intensity Standards 7

2.2 Quota-Based Policy Options 8

2.3 Financial Policy Options 9

2.3.1 Financial Policy for Micro-Generation 9

2.3.2 Financial Policy for Large-Scale 10

3. Conclusion and Recommendations 12

Appendix 1: Establishing the Value of Solar in Alberta 15

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Contact CanSIACanadian Solar Industries Association

150 Isabella Street, Suite 605

Ottawa, Ontario, Canada, K1S 1V7

Tel (613) 736-9077

Fax (613) 736-8938

www.cansia.ca


FOREWORD

Alberta’s energy resourc-es and the human talent required to harness them have largely brought the province to where it proud-ly stands today – a global energy leader with a diverse resource portfolio including coal, natural gas, conven-tional oil and oil sands, elec-tricity, petrochemicals and minerals.

Alberta is also fortunate to have one of Canada’s greatest solar energy resources with an amount equivalent to all of the province’s re-maining conventional established oil reserves (estimat-ed at 1.5 billion barrels) falling upon the province in an average day. However, this high-value proven reserve with a negligible environmental impact remains largely untapped.

In 2008, Alberta’s Provincial Energy Strategy indicated that solar and renewable energy are “growing off a very small base, but their viability is improving and inno-vation is percolating. As such, they have the potential to become a significant part of the global energy mix this century, but based on demand here in Alberta and globally, they cannot entirely replace fossil fuels any time soon.”

The viability and market penetration of Solar Photovol-taics (PV) for electricity generation has changed signifi-cantly in the five years since 2008:

¡ In the ten years from 2005 to 2015, the average installed system price in Canada is expected to have decreased six-fold from $15/W to less than $2.5/W.

¡ A capacity equivalent to 6.5 times Alberta’s current total installed electricity generation capacity (85 GW) was installed globally during the five years from 2008 to 2013.

By 2020, it is likely that similar amounts of capacity add-ed in those five years will be added globally on an an-nual basis.

It is now time to take action so that as we end this de-cade, solar energy is a meaningful part of Alberta’s elec-tricity mix reducing GHG emissions; diversifying supply; and maintaining a Social Licence.

In 2013, Alberta became the first Canadian province to create a cabinet position focused on renewable energy development (Associate Minister for Electricity and Re-newable Energy).

With the implementation of the province’s Renewable and Alternative Energy Framework expected later this year, 2014 will be a year looked back on as a monumen-tally important year in the development of the prov-ince’s solar energy sector.

This report presents the results of consultation and re-search undertaken by CanSIA and supported by third party experts throughout 2013 to identify the available solar energy policy options that would be most effective to enable Albertans to realize a fair value for the solar electricity they generate while using existing funding sources for electricity procurement and emissions re-ductions and integrating within the existing policy and market framework.

We as an industry are excited about the role that solar will play in Alberta’s electricity sector in the coming five years.

John Gorman

PresidentCanadian Solar Industries Association


Executive SummaryIn 2014, the Government of Alberta is expected to release the “Renewable and Alternative Energy Framework” as part of its ongoing energy policy development and cli-mate change policy renewal. This comes at a time when Alberta will need 7,000 megawatts of new power genera-tion by 2022 (5,000 MW of which is due to the retirement of coal-fuelled power plants).

Increasing the role of solar electricity in the province’s electricity-mix would address three key issues:

¡ Reducing GHG Emissions: Alberta’s electricity sector is a major contributor to emissions in the province releasing approximately 21% of the province’s total GHG emissions in 2012.

¡ Diversifying Supply: In 2012, 85% of Alberta’s electricity was generated from coal (64%) and natural gas (21%) and it is expected that natural gas will be the fastest growing generation source leaving the province exposed to the volatility of natural gas pricing; and

¡ Maintaining a Social Licence: There is growing attention to a need to demonstrate more visible leadership on improving the environmental performance of the province’s energy production and consumption to maintain its position as a global energy superpower.

Unless Alberta’s energy policy and market framework evolves, solar energy will continue to play a minor role in the province as under existing conditions investor re-turn and stability are key barriers to deployment. Feed-In Tariffs (FIT) have been an extremely successful policy for addressing these issues globally, giving rise to 61% of the global solar PV market in 2012. Alberta’s deregulated elec-tricity market poses challenges to the implementation of a FIT.

In order for a policy mechanism to maximize its success in Alberta, it should:

¡ Integrate within the existing policy and market framework.

¡ Enable Albertans to realize a fair value for the solar electricity they generate; and

¡ Use existing funding sources for electricity procurement and emissions reductions.

Detailing the most appropriate policy mechanisms for Al-berta will require significant stakeholder consultation and time to ensure that it will be effective. In this report, Can-SIA presents recommendations that target the creation of near-term building blocks that will begin the process of building awareness, capacity and expertise within the province while the actions to affirm the future meaningful role of solar in Alberta’s electricity supply are devised:

1. Introduce a Renewable and Alternative Energy Framework that charts the path for a minimum of 1.5% of Alberta’s electricity demand to be met by solar in 2022.

2. “Enhance” Alberta’s net-billing by increasing the price paid for exported solar electricity to reflect an appropriate market value to enable Albertans to realize a fair value for the solar electricity they generate.

3. Introduce a CCEMF funded program that targets accelerated deployment in the residential and non-residential sectors with “Clean-Energy-Adders” to support the mandate of the CCEMC while longer term policy solutions are developed.

4. Introduce an Interim Demonstration Pilot Program for Large-Scale Solar to give rise to 150MW build capacity and overcome regulatory barriers before long-term policy is finalized.

If Alberta were to introduce policy that targeted 1.5% of Alberta’s electricity demand to be met by solar in 2022, this would lead to solar playing a meaningful role in Alber-ta’s electricity sector:

¡ Over 1 GW of solar facilities;

¡ 1.25 TWh of solar electricity annually;

¡ 625,000 tonnes of GHG emissions displaced annually.

¡ A deployment rate of 235.3 Watts per capita.

¡ Over 24,000 direct and 9,500 indirect jobs;

¡ Over $3.2 billion of private sector investment in Project Construction and Installation ($1.8 local spending).

CanSIA is committed to being an effective partner and stakeholder for the Government of Alberta as the process to introduce and implement the Renewable and Alterna-tive Energy Framework develops in 2014.


1. Introduction In 2014, the Government of Alberta is expected to release the “Renewable and Alternative Energy Framework” as part of its ongoing energy policy development and climate change policy renewal.

This policy framework could lay the groundwork for the province’s first renewable energy policy and would give rise to measures aimed at enabling greater participation from solar and other renewable energy sources in the province’s electricity-mix. This framework comes at a time when great change is beginning in Alberta’s electricity sector.

1.1 Why is Solar Important for the Future of Alberta’s Electricity Sector?

Figure 1. Projected GHG Emissions Change in Canada, 2005-2012

Alberta will need 7,000 megawatts of new power gen-eration by 2022 (5,000 MW of which is due to the retire-ment of coal-fuelled power plants)1. Over the next forty years, it is forecast that Alberta will need to double its electricity generation capacity (to 26 GW by 2050 from 13 GW in 2013)2 to meet a 100% increase in demand, during a time when 85% of the province’s existing coal-fired generation will be retired.

Ensuring that the Renewable and Alternative Energy Framework gives rise to a meaningful policy for solar electricity will be important to enable Alberta to tackle several important issues affecting the province’s elec-tricity sector today including:

¡ Reducing GHG Emissions;

¡ Diversifying Supply; and

¡ Maintaining a Social Licence.

Reducing GHG Emissions: Recent projections from Environment Canada indicate that Alberta is not on track to reach the emissions reduction targets called for in the province’s Climate Change Strategy (50 Mt be-neath the business as usual by 2050).

Alberta’s electricity sector is a major contributor to emis-sions in the province releasing approximately 21% of the province’s total GHG emissions in 2012 (48 Mt of CO2). With 2012 emission levels approximately equivalent to those of the province’s oil sands operations, Alberta’s electricity system is responsible for more than half of all the GHG emissions from Canada’s electricity sector.

Alberta’s Climate Change Strategy set out a target for the province to reduce its emissions by 14% compared to 2005 levels, by the year 2050. This strategy anticipat-ed approximately 70% of the reductions would come

1 Alberta Electricity System Operator (2013).2 Independent Power Producers Society of Alberta (IPPSA) (2013)

from Carbon Capture and Storage (CCS), and the prov-ince set aside $2 billion to stimulate early CCS invest-ment in Alberta. However, two of the four CCS projects were cancelled in 2012, both of which were within the electricity sector.

Despite the Federal regulations that will phase out coal over the next 5 decades, the Independent Power Pro-ducers Society of Alberta (IPPSA) forecast that the sec-tor’s emissions will increase by 10% from 2005 levels by 2050; a significant gap compared to the government’s target of a 14% decrease.

As such, without a renewed effort to reduce emissions from electricity generation, the sector will make it more difficult for Alberta to meet its own emissions reductions targets. Increasing the contribution of solar electricity to Alberta’s electricity-mix to a meaningful level could dramatically reduce GHG emissions as has been demon-strated successfully in jurisdictions around the world.


Diversifying Supply: Ensuring a diversity of supply is critical for energy security, (the uninterrupted availability of energy sources at an affordable price) as it can stabilize prices, pro-vide price certainty and protect against market volatility.

In 2012, 85% of Alberta’s electricity was generated from coal (64%) and natural gas (21%) and the Alberta Electric System Operator (AESO) expects that natural gas will be the fastest growing generation source over the next 20 years as aging coal assets are retired.3

As Alberta’s electricity market becomes increasingly reliant on natural gas, natural gas will set the electricity market’s marginal price more frequently.

Exposure to continental and increasingly global natural gas markets can make natural gas prices extremely volatile. 4

The price (AECO C benchmark) for gas delivered within the province of Alberta is forecast to rise to just under $4.00 per GJ by October 2017, and near $5.00 per GJ by late 2018, clos-er to the 1998-2012 average price of $5.07 per GJ.

If this forecast comes to pass, the price of natural gas in Al-berta will have increased by approximately 243% in just over five years.

It is certain that natural gas will continue to play a significant role in Alberta’s electricity sector, however steps to mitigate the potential for price volatility should be integral to energy policy that adequately addresses energy security.

Solar electricity is not exposed to fuel price volatility and long-term solar pricing is competitive with natural gas. The diversification of Alberta’s electricity supply with stable priced solar electricity would bring significant benefits to Alberta’s electricity sector.

Maintaining Social Licence: There is growing attention to a need to demonstrate more visible leader-ship on improving the environmental performance of the province’s energy production and consump-tion to maintain its position as a global energy superpower.

Social Licence is “the degree to which activities meet the expectations of local communities, the wider society and various constituent groups”.

“It has been our objective to continue to make progress on environmental enhancement for two reasons. One, because we have a responsibility as global citizens and two because we need to have the Social Licence to continue to develop our resources” —Hon. Joe Oliver, Canada’s Minister of Natural Resources (CBC, September 2013).

3 AESO (2012) “ 2012 Long-term Outlook”4 2012 saw the lowest natural gas prices in over a decade. During the summer of 2012 (May to September) the average

Intra-Alberta gas price was $2.06 per GJ and as of April 2013 it had risen by 41% (to $3.52).

Figure 2. GHG Emissions from Electricity Generation in Canada (2011)

Figure 3. Electricity Generation by Fuel Type in 2012


Public opinion is the “barometer” for Social Licence and time-and-time-again in Canada, solar energy is shown to have broader social acceptance than any other en-ergy source.

Canadians feel that reducing fossil fuel reliance (66%), creating more clean energy jobs (74%) and reducing carbon pollution (67%) are top or high pri-orities —Harris Decima (July, 2012)

83% of Canadians strongly or somewhat agree with setting aside a portion of our oil wealth to help us prepare for a clean & renewable future —Harris Decima (July, 2012)

92-97% strongly or somewhat support solar to pro-duce electricity (with only 3-5% opposing) —In-novative Research Group, Inc. (2011, 2012) & Ipsos Reid (2008, 2009, 2010).

1.2 Why does Alberta’s Current Policy Need to Change for Solar Electricity?

Under the current Electricity and GHG market and poli-cy structure, the adoption of solar in Alberta will contin-ue to grow steadily but slowly leading to solar playing a very minor role in the province and a missed opportuni-ty to diversify the province’s electricity supply at a time when significant new generation assets will be built.

The key market and policy barriers that need to be over-come to accelerate the rate of deployment in Alberta are i) investor return and ii) investor stability.

Investor Return: At present in Alberta, solar electricity typically realizes less than the market rate for the elec-tricity at the time that it is generated nor does it realize value for its distribution efficiency and its price certain-ty (see Appendix 1). In addition, it does not realize val-ue for GHG emissions displacement (see Section 2.1.1).

Investor Stability: Households, small-businesses and institutional investors all require a minimum level of fi-nancial predictability so that they can assess whether an investment meets their criteria. The volatility and unpredictability of Alberta’s electricity market and the current policy and market design serves as a significant barrier to investment in solar energy.

Globally, Feed-In Tariffs (FIT) have been the policy that has most successfully accelerated the deployment of solar globally as they can be designed to address both investor return and investor stability in a very target-ed way. FIT programs were responsible for 61% of the global solar PV market in 2012 .5

It is unclear whether and how a FIT could be integrat-ed within the province’s deregulated market. There are many other policy options that could achieve equiva-lent results to a FIT if designed and implemented effec-tively. For a policy option to have the best probability of success in Alberta, it should:

¡ Integrate within the existing policy and market framework.

¡ Enable Albertans to realize a fair value for the solar electricity they generate; and

¡ Use existing funding sources for electricity procurement and emissions reductions.

What are the available policy options that would be most effective for Alberta? The following section exam-ines the existing policy and market framework for so-lar energy in Alberta and identifies ways in which they could be improved to increase the role of solar energy in the province.

5 IEA PVPS (2013) “Trends in Photovoltaic Applications”


2. What Available Policy Options would be Most Effective for Alberta?A diverse set of policy options are possible for Alber-ta’s electricity sector, with a wealth of experience in jurisdictions around the world to inform their design and implementation. The suitability of each of these options to Alberta’s unique market, policy and political landscape vary and their introduction presents unique opportunities and constraints.

Significant policy conversations have taken place in Alberta around clean electricity development. In these assessments, there exist a number of broad function-al groups of policy options available to Alberta, which could function independently or in combination:

A. GHG Emissions-Based Policy Options.

B. Quota-Based Policy Options.

C. Financial-Based Policy Options.

2.1 GHG Emissions Policy Options

GHG Emissions-based policy options for the electric-ity sector are typically designed to reduce the overall emissions intensity (i.e. “greening-the-grid”). They most commonly set a unit price on emissions to incentivize emitters to take measures to avoid or minimize their fi-nancial exposure to emitting (i.e. Carbon Pricing) and/or impose a mandated limit on emissions with penalties for non-compliance (i.e. Emissions-Intensity Standards). Both mechanisms can create a secondary market for emissions displacement where emissions displacement can be achieved indirectly (i.e. Carbon Offsets or Tech-nology Funds).

Alberta’s target to reduce provincial emissions by 50 Mt beneath the business as usual by 2050 and the Specified Gas Emitters Regulation (SGER) combines the Emissions Intensity Standards, Carbon Pricing, Carbon Offsets and Technology Funds policy options, by requiring that ma-jor GHG emitters (facilities with emissions of more than 100,000 tonnes of per year):

¡ Reduce their emissions intensity by 12 % (from their 2003-2005 baseline emissions intensity); or

¡ Purchase Carbon Offsets to displace their level of non-compliant emissions; or

¡ Make a Technology Fund payment of $15/tonne to displace their level of non-compliant emissions.

However, under the current program design, SGER has not been effective as a policy to displace emissions in the electricity sector with solar electricity.

2.1.1 Carbon Pricing, Carbon Offsets and Technology Funds

Global experience has shown that Carbon Pricing and Carbon Offsets can be effective in achieving emis-sions displacement in the electricity sector from solar electricity when combined with other complimentary mechanisms. However, significant growth in Solar PV has not been achieved in any jurisdiction with these policy mechanisms alone.

In Alberta, there are currently several factors that re-duce the effectiveness of SGER in achieving emissions displacement in the electricity sector from solar elec-tricity including the Price of Carbon and the Utility of Carbon Offsets.

Price of Carbon: Alberta’s current Carbon Pricing equates to an offset value of approximately 1 ¢/kWh for solar electricity.6 This level of financial incentive would support the business case for directly or indirectly dis-placing emissions with solar electricity but would not create the business case in the absence of other sup-portive policy.

Utility of Carbon Offsets: The Quantifying Protocol for small-scale systems requires that offset projects (individual systems) are aggregated. The transaction costs and labour required to create agreements with system owners, to monitor and verify offsets and to contract an offset buyer significantly out-weighs the financial return for doing so. 7 As a result, it is imprac-tical for small-scale PV to secure revenue for the GHG that it offsets. For large-scale solar, long term Carbon Offsets contracts are both few and of a low credit qual-ity. The credit quality is low as the market value for off-set credits is unstable and as they are only guaranteed offset revenue for eight years (with the possibility of a five-year extension).8 As a result, if long-term offset

6 0.975 to 1.05 ¢/kWh for 0.65 to 0.7 kgCO2e/kWh for up to $15 per tonne for small- and large-scale respectively.

7 For example, if Alberta’s ~700 systems solar PV (3 MW) was aggregated today to generate offset credits, it would lead to a maximum revenue stream of approximately $40,000 per year.

8 Alberta Environment and Sustainable Resource Development, Technical Guidance for Offset Project Developers: Version 4.0, February 2013, 18-19. http://environment.alberta.ca/02297.html


contracts of good credit quality were more abundant, financeable projects would proceed regardless of the fi-nancial incentive of offsets. Thus, offsets are unlikely to enable additional projects – even though additionality is an important precept of credible and effective offset policy systems.

In Alberta, even if SGER was altered significantly (e.g. double the carbon pricing, emissions covered and con-tract term with provide a financial guarantee for the offset credits), it would not be expected to be effective as a solar electricity policy option without additional supportive measures.

Emitters have paid $400M since SGER commenced in 2007, including $86M in 2012 alone, (to the Climate Change and Emissions Management Fund) for invest-ment in a variety of projects that offer transformative solutions and reduce greenhouse gases. Contributions to renewable energy projects to date have amounted to $98M including two for solar electricity with a con-tribution of $16.83 M to displace over 160,000 tonnes.

The use of Technology Fund monies to support solar electricity demonstration or deployment programs would be an effective means to reduce GHG emissions and to enable Albertans to realize a fair value for the solar electricity they generate; use existing funding sources for electricity procurement and emissions re-ductions; and integrate within the existing policy and market framework.

2.1.2 Emissions Intensity Standards

Alberta’s existing Emissions Intensity Standard targets the emissions of the province’s largest emitters but as compliance may be achieved through the displace-ment of emissions from outside of the electricity sec-tor, the policy does not necessarily directly reduce the emissions intensity of the province’s electricity sector by design.

The introduction of an Emissions Intensity Standard specifically for Alberta’s electricity sector is an available policy option that could target the significant emissions of Alberta’s electricity sector and accelerate the deploy-ment of solar electricity in the province. An example of an Emissions Intensity Standard policy option that has been designed in Alberta by stakeholders from indus-try, academia and the not-for-profit sector is the “Clean Electricity Standard” (CES).

The CES involves a provincially mandated maximum GHG emissions intensity threshold for the electrici-ty-mix supplied by retailers. The threshold declines over time at a pre-defined rate to ensure that long-term targeted GHG emissions reduction goals are met while providing investors assurance and the ability for long-term decision-making as they take steps to decrease the emissions intensity of their portfolio.

Compliance with the CES could be achieved both di-rectly and indirectly as was the case with Carbon Pric-ing, Carbon Offsets and Technology Funds. Retailers that need to reduce their product’s emissions-intensi-ty, could procure cleaner electricity either through the pool or through bilateral power purchase agreements.9

CES allows government policy to send a clear market sig-nal to realize its emissions goals, and it allows the mar-ket to decide which mix of technologies to implement including renewable energy, high-efficiency natural gas, cogeneration, CCS, etc. while creating the framework to establish power purchase agreements between electric-ity retailers and clean energy developers.

Given the distributed nature of small-scale solar, aggre-gation would be required for it to contribute in a mean-ingful way to the policy goals of an Emissions Intensity Standard.

Large-Scale Solar is a predictable and reliable ze-ro-emissions electricity generator and as such, an

9 Retailers include competitive and regulated-rate retailers (who sell to final consumers), self-retailers (mostly industrial consum-ers and municipal utilities who purchase electricity wholesale), and rural electrification associations.

0

500

900

2012 2014 2016 2018 2020 2022 2024

Emissions intensity level"X"

Start date

(kg/

MWh)

Figure 4 Hypothetical emission target decline in a CES


Emissions Intensity Standard could give rise to new long-term PPAs for Large-Scale Solar. Program design would need to ensure a balance in the “costs-to-com-pliance” to achieve meaningful levels of large-scale de-ployment. Such measures could be the institution of a “solar-carve-out” where a mandated level of reductions would be required from solar electricity or through SGER Carbon Equivalency factors for solar electricity that benefits emissions displaced from solar electricity over other sources.

An Emissions Intensity Standard such as the Clean Elec-tricity Standard would broadcast Alberta’s targeted ac-tion on reducing the emissions of its electricity sector. It’s “made-for-Alberta” design and its unique design in global terms would ensure significant global attention.

2.2 Quota-Based Policy Options

Quota-based mechanisms are best known as Renew-able Portfolio Standards (RPS). RPS mandate that a pro-portion of a jurisdiction’s electricity supply is provided by renewable electricity sources. Electricity suppliers are thus required to ensure that their supply-mix com-plies with the mandate or risk penalties for non-compli-ance. The two most important factors for an RPS to be successful are: i) setting targets that are attainable and sufficient to drive significant uptake and ii) compliance mechanisms to ensure that the policy achieves results.

RPS policies currently exist in 76 countries, states and provinces around the world including three Canadian provinces (40% by 2020 in both Nova Scotia and New Brunswick and 93% in British Columbia) and are also

present in the majority of US states, including states with deregulated markets such as Texas (see Appendix). “Solar Carve-Outs” – specifically mandating a given pro-portion the RPS derive from solar energy – are common features of RPS policies around the world, including 15 U.S. states (denoted with solar graphics below).

A Renewable Portfolio Standard for Alberta could re-quire that a minimum of 20% of the electricity pro-duced in the province, or provided by all retailers be sourced from renewable energy by 2020. Producers or retailers would then need to take steps to ensure that their mix meets this requirement by procuring renew-able energy. It would be left to them to reach the mini-mum through private-sector exchange, creating a mar-ket for renewable energy. A likely result would be the creation of long-term bilateral PPAs in order to secure compliance. With PPA opportunities thus incented, the price certainty required for financing renewable energy projects would be available.

An achievable Solar Carve-Out in Alberta could require that 1.5% of electricity in Alberta be derived from solar by 2022.

2.3 Financial Policy Options

There are numerous types of financial mechanisms including Capital Subsidies, Grants, and Rebates, Credit Enhancements (e.g. Loan Guarantees, Interest rate buy-downs), Levelized Electricity Pricing, Perfor-mance-Based Incentives, Public Investment and Fi-nancing, Public/System Benefit Funds, Tax Incentives and Credits, Tradable Certificates that could assist solar energy producers participate in the market.

Each mechanism centrally involves direct financial support to eligible projects. These can target projects’ upfront capital investment or be tied to actual produc-tion, recent examples in Alberta include the $2 billion allocation for carbon capture and storage pilot projects and the 17-60 $/MWh biomass electricity production incentive.

Alberta has a wholesale, energy-only electricity mar-ket managed by the Alberta Electric System Operator (AESO). Any person or company in Alberta is permitted to generate solar electricity and feed it into the electric-ity transmission or distribution systems as either i) Mi-cro-Generation or ii) Transmission- or Distribution-Con-nected Generation.

Renewable Portfolio Standard Policies.. www.dsireusa.org / March 2013.

29 states,+ Washington DC and 2

territories,have Renewable Portfolio

Standards (8 states and 2 territories have

renewable portfolio goals).

Figure 5 The adoption of Renewable Portfolio Standards byU.S. states (source: DSIRE)


2.3.1 Financial Policy for Micro-Generation

The existing policy in Alberta for micro-generation is commonly known as “net-billing” 10. In net-billing, solar electricity is generated on-site and primarily supplies on-site demands. When generation exceeds demand at any given time, the surplus electricity is exported to the distribution system.

Net-billed systems in Alberta benefit from simplified and streamlined grid-interconnection approval pro-cesses and paperwork, eliminated meter purchase and installation costs, meter data management costs and electricity market participation costs for the generating unit owner.

Net-billing with solar realizes a value of typically 12 ¢/kWh11 on average for the electricity generated in two ways in Alberta today:

¡ Self-Consumption: Off-setting retail expense and delivery charges.

¡ Export: Receiving credit when generation exceeds demand.

10 To qualify for net-billing in Alberta, the solar PV system must have a rated generating capacity less than 150 kW, be intended to meet all or a portion of the customer’s annual electricity needs and be located on or next to the customer’s site. The system is metered with a bi-directional (also called a cumulative) meter that measures and records both imported and exported electricity separately.

11 When offsetting 8.5 ¢/kWh retail , 6 ¢/kWh delivery charge, consuming 60% and exporting 40%.

Figure 6 Typical Values Realized by Small-Scale Solar in Alberta

For solar micro-generators and as with any generator in an energy-only market, the fixed costs of a capital in-vestment needs to be recovered in order to attract new investment.

The level of value currently realized by small-scale so-lar is less than its market value (In 2013 solar was 68% higher than the average pool price, see Appendix 1) and does not provide the predictable return that is required to accelerate the deployment of Solar PV in Alberta and for this reason is not effective for solar electricity.

The Electric Utilities Act already allows Alberta Energy to provide for a micro-generation carve-out and to establish the compensation mechanism available for micro-generators. Alberta Energy currently sets the compensation for excess electricity exported to the dis-tribution system by small micro-generation systems at the retailer’s retail rate generally, the price at which the customer pays for electricity from their own retailer. Re-tailers recover this cost via a power pool tariff.

Leveraging this mechanism and the Technology Fund to address the issues of investor return and stability for solar would be an excellent option that: integrates in the existing policy and market framework; enables Albertans to realize a fair value for the solar electricity they generate; and uses existing funding sources for electricity procurement and emissions reductions.

2.3.2 Financial Policy for Large-Scale

The volatile nature of Alberta’s market system has posed a serious barrier to new electricity generation of any type, due to lack of even moderate levels of price certainty and, concomitantly, high risk in future reve-nue over the life of generation assets.

Volatility has been the one common status for the elec-tricity market since its initiation in the early 2000s. Com-bined with recently low natural gas prices, this volatility and uncertainty about future electricity prices under-mines investor confidence and makes it difficult to at-tract balance-sheet, equity, or debt financing.

A Morrison Park Advisors report developed for the Mar-ket Surveillance Administrator (MSA) that interviewed debt providers found: “All debt providers stated that they would not provide project debt to new generation proj-ects relying exclusively for revenues on the energy-on-ly market”. The result is that even where a generation


source or proposed project can, according to best pro-jections, prove profitable over the life of the project, risk undermines these investments in the Alberta market.

A variety of renewable energy development sector participants and electricity system commentators and experts have acknowledged a correlated solution to the price uncertainty problem: the need for long-term contracts for power. According to the MSA, “Long term power sales are rare in the Alberta electricity market and as a consequence do not offer an opportunity to mitigate risk” and “[o]ther electricity jurisdictions are more attractive to some types of investors because of the existence of long term contracts.”12 The Morrison Park Advisors report found that “if projects have firm long-term contracts with credit-worthy counterparties, then they would consider providing debt coincident with the length of the contract term.” 13

Equity providers “mirrored the concerns of debt pro-viders.”14 In short, without long-term power purchase agreements (PPAs) with credit-worthy customers, it is extremely difficult to secure long-term financing for new generation builds.

This also points to the key solution necessary: provid-ing or fostering long-term PPAs. With PPAs, this prob-lem of price uncertainty is overcome for PPA recipients. Prospective developers can then take their contract “to the bank”, so to speak, and financing opportunities will become available at lower cost.

Long Term PPAs for solar electricity can be fostered through a variety of mechanisms whether it be through emissions-based policy options (e.g. Clean Electricity Standards), quota-based policy options (e.g Renewable Portfolio Standards) or otherwise. Financial-based pol-icy for large-scale should target the creation of long-term PPAs.

12 Ibid.13 Morrison Park Advisors, Investor Perspectives on the Attrac-

tiveness of Alberta’s Electricity Generation Market prepared for Market Surveillance Administrator (2012), 13. http://albertamsa.ca/uploads/pdf/Archive/2012/Investor Perspectives Report to MSA - 17 Augus.pdf

14 Ibid., 14.

3. Conclusion and Recommendations

The time is right for Alberta to introduce new policy for solar electricity to address the key issues of reducing GHG emissions; diversifying supply; and maintaining a Social Licence in the province’s electricity sector.

The policy should enable Albertans to realize a fair value for the solar electricity they generate, use existing fund-ing sources for electricity procurement and emissions reductions and integrate within the existing policy and market framework. The policy should also be designed to address the issues of investor return and stability.

Detailing the most appropriate policy mechanisms for Alberta will require significant stakeholder consultation and time to ensure that it will be effective. CanSIA pres-ents the following recommendations that target the creation of near-term building blocks that will begin the process of building awareness, capacity and exper-tise within the province while the actions to affirm the future meaningful role of solar in Alberta’s electricity supply are devised.


CanSIA recommends that in 2014, the Government of Alberta:

1. Introduce a Renewable and Alternative Energy Framework that charts the path for a minimum of 1.5% of Alberta’s electricity demand to be met by solar in 2022.

Unless Alberta plots a clear path forward and begins to take action now a significant opportunity will be lost to reduce GHG emissions, diversify supply and maintain a social licence in Alberta’s electricity sector.

The implementation of a Renewable and Alternative Energy Framework that sets clear targets and evolves the province’s market structure to enable solar to supply a minimum of 1.5% of Alberta’s electrici-ty demand by 2022 would ensure that solar will play a meaningful role in the province’s electricity sector.

The Framework should focus on the implementation of policy that addresses the issues of investor finan-cial return and stability for all applications from distributed- to utility-scale including the introduction of a provincial renewable energy policy such as a Renewable Portfolio Standard or a Clean Electricity Standard.

2. “Enhance” Alberta’s net-billing by increasing the price paid for exported solar electricity to reflect an appropriate market value to enable Albertans to realize a fair value for the solar electricity they generate.

Alberta’s “net-billing” program (i.e. Micro Generation Regulation) enables Albertans to generate their own solar electricity and receive credit for any power they send into the electrical grid. Increasing the rate received for exported electricity to a level that reflects its true value and guaranteeing its presence for a fixed-period of time (i.e. “enhanced net-billing”) would improve investor return and stability and lead to increased levels of deployment.15 A minimum payment 15 ¢/kWh would be appropriate in the current market (see Appendix 1) and a minimum term of fifteen years would provide the required investor stabil-ity. The rate received could be structured either as a fixed payment (e.g. a total of 15 ¢/kWh for every unit exported) or as a fixed “adder” to the retail rate (e.g. a fixed 12.5 ¢/kWh adder received in combination with the prevailing retail rate). This mechanism would continue to be funded by the Balancing Pool.

3. Introduce a CCEMF funded program that targets accelerated deployment in the residential and non-residential sectors with “Clean-Energy-Adders” to support the mandate of the CCEMC while longer term policy solutions are developed.

A. Residential: Provide a 10 ¢/kWh “top-up” on all solar electricity exported by residential micro-gen-erators for a fixed term of fifteen years to accelerate the deployment of solar in the residential sector. The “Clean-Energy-Adder” is a simple approach which compliments the existing micro-generation program. The funding for this mechanism would amount to a total of $500k to $1 million per MW deployed (equivalent to $47,000 per year per MW for fifteen years).

B. Non-Residential: Provide a 15 ¢/kWh “top-up” on all solar electricity generated by non-residen-tial micro-generators for a fixed term of fifteen years to accelerate the deployment of solar in the non-residential sector. This mechanism possesses many of the benefits of a Feed-In Tariff program but avoids many of the potential issues that could arise from introducing one in Alberta’s deregulat-ed market. The funding for this mechanism would amount to a total of approximately $2.8 million per MW deployed (equivalent to $187.5k per year for fifteen years per MW of non-residential solar deployed).

15 Residential micro-generators would benefit most from this mechanism as non-residential micro-generation systems typically do not export significant amounts of electricity.


4. Introduce an Interim Demonstration Pilot Program for Large-Scale Solar to give rise to 150MW build capacity and overcome regulatory barriers before long-term policy is finalized.

The implementation of a large-scale solar demonstration pilot program that would give rise to the construction of 150 MW of large-scale solar facilities in the three years 2015 to 2017 would enable the province’s electricity sector, regulatory agencies and bodies to build capacity and expertise in how solar facilities can be integrated in the province while a longer term provincial renewable energy strategy is devised and introduced.

As with “enhanced net-billing”, a Demonstration Pilot Program could be funded by CCEMF funding and existing market mechanisms bolstered by the addition of measures which could include a Power Purchase Agreement, Capital Grants or several other mechanisms. A similar approach was taken for the CCS funding that has been allocated as stated on Alberta Energy’s website: “Alberta’s investment in CCS will also help make carbon capture and storage technologies more accessible. Both funded CCS projects are required to share technical information and lessons learned. This will help future CCS projects from around the world benefit from the lessons learned in Alberta.

Alberta Infrastructure manages Alberta’s government-owned infrastructure.16 The ministry has a number of environmental initiatives to reduce the climate change impacts of its buildings and oper-ations, including installing solar PV systems on government buildings, such as the Alberta Legislature Building.17 Already, all of the grid electricity used in government buildings “comes from green sourc-es”, using EcoLogo certified renewable power from Alberta wind farms.18

Once the provincial learning process is complete following development, commissioning and early operations of this large-scale solar fleet, the implementation of longer term policy could commence giving rise to further large-scale solar development in 2018 and beyond.

If Alberta were to introduce policy that targeted 1.5% of Alberta’s electricity demand to be met by solar in 2022, this would lead to solar playing a meaningful role in Alberta’s electricity sector:

¡ Over 1 GW of solar facilities;

¡ 1.25 TWh of solar electricity annually;

¡ 625,000 tonnes of GHG emissions displaced annually. 19

¡ A deployment rate of 235.3 Watts per capita.

¡ Over 24,000 direct and 9,500 indirect jobs;

¡ Over $3.2 billion of private sector investment in Project Construction and Installation ($1.8 local spending).20

CanSIA is committed to being an effective partner and stakeholder for the Government of Alberta as the process to introduce and implement the Renewable and Alternative Energy Framework develops in 2014.

16 Alberta Infrastructure, Our Ministry. http://www.infrastructure.alberta.ca/593.htm17 Alberta Infrastructure, Environmental Initiatives. http://www.infrastructure.alberta.ca/501.htm18 Ibid.19 Assumes a grid electricity emissions intensity of 0.5 tonnes per MWh in 2022.20 Based on analysis with the National Research Laboratory’s (NREL) Jobs and Economic Development Impact Model

(PV10.17.11), 2 GW would create 16,489 Project Development and Onsite Labor, 14,864 Supply Chain and 12,307 Induced jobs with 500 MW utility-scale, 150 MW residential and 350 MW residential-scale.


Appendix 1: Establishing the Value of Solar in Alberta

Solar PV can provide a wide range of benefits to the electricity system. At the local level, solar reduces energy losses and defers distribution and transmission network investment driven by capacity needs. The distribution and trans-mission power systems can also benefit from grid support services provided by solar PV generators through voltage control, frequency regulation and fast reaction to energy imbalance.

Much research has been undertaken to understand and support the value of solar PV generation ranging from contri-butions of national agencies such as the National Renewable Energy Laboratory (NREL) and the Electricity Innovation Lab, to regulators and prominent analysis from universities. The results of this research are summarized in the follow-ing unique benefits that solar PV provides to power systems and society as a whole.

1. Avoided Energy from Marginal Cost Generators: Solar PV generation can offset the marginal cost of generation required to otherwise generate, transmit, distribute, maintain and manage risk for centralized facilities in the electricity system.

2. Reduction of Energy Losses: The ability of solar PV generation to be located at any load eliminates losses that would otherwise occur from off-site generation to serve that load.

3. Deferring Transmission and Distribution Capacity Requirements: Installation of solar PV generation can meet local and regional system demand and defer investments in transmission and distribution infrastructure that would have been otherwise required to service that demand.

4. Reactive Power Supply and Voltage Control: As an inverter based generation technology, solar PV generation can provide reactive power support to meet real-time power system needs for voltage stability and control. Large solar PV systems can provide 100% reactive power support for voltage control issues.

5. Frequency Regulation Support: The fast reaction of solar PV generation through inverter control can provide real-time response to frequency imbalances from the differences in actual and scheduled generation and can also provide automatic response to frequency deviations.

Other jurisdictions14 have demonstrated solar PV systems can combine Regulation Services and Frequency Response Services as a single service to local power systems.

6. Energy Imbalance Reaction: As more variable generation enters the power system, the ability to ramp down quickly is as important as the ability to ramp up quickly to meet changes in supply and demand balances. Solar PV power electronic control capability to react quickly allows it to ramp down or ramp back up to meet changing energy imbalances within the power system in real time. This ability should help to resolve issues raised by distributors and transmitters with respect to backfeed on current distribution and transmission equipment.

7. Fuel Price Risk Reduction: Since solar PV energy production has a fixed, known zero input fuel cost it is a natural hedge to changes in fuel prices for other forms of generation, in particular natural gas.

8. Reducing Security and Reliability Risks: Research has shown that the installation of distributed solar PV resources can decreased the impact of blackouts due to a reduction of transmission and distribution system congestion. This can improve security of supply for many customers and improve restoration of service to customers lost to a major outage event through islanding and voltage support services.

In Alberta, solar electricity typically realizes value in two ways through “net-billing”: i) Self-Consumption (i.e. consum-ing the electricity they generate thereby avoiding expenditure) and ii) Export (i.e. receiving payment for electricity generated when it exceeds the on-site demand).

In 2013, this value was typically 14.5 ¢/kWh for self-consumption (including delivery charges) and 8.5 ¢/kWh for ex-ported electricity. As a result, systems that consumed all of the electricity generated would realize an average of 14.5 ¢/kWh whereas systems that consumed half of generation and exported half would realize 11.5 ¢/kWh.


A value of 11.5 to 14.5 ¢/kWh does not reflect the true value of solar as it fails to recognize the value of solar including its i) Time of Generation ii) Location of Generation iii) Price Certainty and iv) Low Environmental Impact.

Figure 8 Typical Values Realized for Solar Electricity in Alberta 23

¡ Time of Generation: The pool price during the times that solar electricity is generating is consistently higher that the average pool price in Alberta. In 2013, it was 68% higher (and an average of 44% between 2010 and 2012). A Solar PV system receiving Alberta’s hourly pool prices would have received approximately 13.5 ¢/kWh (with south-facing modules at a 45 degree tilt).

¡ Location of Generation: Unlike centralized generation assets, solar can be on-site or near to loads. As a result, distribution losses are minimized. Alberta’s distribution system has an efficiency of ~96%. Therefore, solar electricity that is exported and not subject to distribution losses has a 4% distribution efficiency benefit over centralized generation assets, or 0.5 ¢/kWh.

¡ Price Certainty: While it is difficult to calculate the exact value of fixed price electricity as a fuel-hedge against volatile sources, there are examples including a study in New Jersey & Pennsylvania that found the value of the hedge to be 3.6 ¢/kWh.

¡ Low Environmental Impact: A price on Carbon of $30 equates approximately to an offset value of approximately 2 ¢/kWh for solar electricity. This value is currently not being realized by solar. In addition to GHG emissions, there are also other emissions impacts that result in significant costs to society through human health and environmental degradation (e.g. NOx, SOx, Particulate Matter, Mercury, etc). Health impacts from coal power’s non-climate air pollution alone from electricity generation in Alberta has been estimated to cost around $840 million. This represents a cost of 1.1 ¢/kWh.

Thus, electricity solar electricity exported from net-billed systems should realize a minimum value of:

Value of Solar ¢/kWh

Time of Generation 13.5

Location of Generation 0.5

Price Certainty 3.6

Low Environmental Impact 3.1

Minimum Total Value 20.7 23 0.975 to 1.05 ¢/kWh for 0.65 to 0.7 kgCO2e/kWh for up to $15 per tonne for

small- and large-scale respectively.

Realizing the True Value of Solar Energy in Alberta · solar energy policy options that would be...

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